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The president may be trying to make it up to Iowans and come to the aid of a friendly governor before the 2020 Iowa caucuses. Gov. Kim Reynolds is currently trailing her Democratic challenger. | Evan Vucci/AP Photo

Trump's ethanol move delivers gift to corn country

President Donald Trump ordered the Environmental Protection Agency to expand sales of corn ethanol on Tuesday, delivering a gift to farm state Republicans a month before the midterm elections.

The move ends months of bitter behind-the-scenes fighting between corn backers and the oil industry over Trump's calls to increase ethanol sales, and it could benefit Iowa's Republican governor, who is trailing her Democratic challenger in the polls, as well as at least two Iowa House incumbents who are also vulnerable. But the oil industry's most powerful trade group immediately said it will fight to block the action.

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"We want to get more fuel into the system," Trump told reporters before boarding Marine One to travel to a rally in Council Bluffs, Iowa. "This is great for our farmers, and it's a promise I made during the campaign, and as you know I keep my promises."

EPA expects to finish a rule by the beginning of June to allow year-round sales of gasoline with 15 percent ethanol content, an increase over the 10 percent blends that are sold at most gas stations around the nation. The sale of the blends, known as "E15," is currently prohibited during the summer months in several states because of Clean Air Act restrictions, and corn growers have long sought to expand sales of the higher concentrations.

"This is a big deal," said Jeff Navin, a Democratic former aide to ex-Senate Majority Leader Tom Daschle of South Dakota and former chief of staff in the Obama administration's Energy Department. "It's not something that makes a front page of East and West Coast newspapers, but it's something that farmers watch closely. I’m sure the political team and elected officials in Iowa told [Trump] he has to do something to staunch bleeding."

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Sens. Chuck Grassley (R-Iowa), Joni Ernst (R-Iowa), Deb Fischer (R-Neb.) and John Thune (R-S.D.), along with Agriculture Secretary Sonny Perdue and Rep. David Young (R-Iowa) joined Trump in the Oval Office for his announcement, which the White House did not publicly broadcast.

"This is a very good victory for agriculture, a very good victory for workers at our 50 ethanol plants in Iowa and other states. it's a very good victory for the environment and everything about this is good, good, good," Grassley said in a video posted on Instagram.

Trump has previously called for increased sales of ethanol, which consumes about 40 percent of the U.S. corn crop. He strongly backed the biofuel during the 2016 campaign, a stance that appealed to Midwestern farmers who helped carry him to victory but who have been battered by his trade war and retaliatory tariffs from countries angry over his steel and aluminum tariffs.

But the U.S. oil industry has staunchly opposed increasing ethanol sales, and it has pressed for EPA and Congress to overhaul the federal biofuels mandate that Congress first created in 2005 to help reduce U.S. dependence on imported oil. The mandate requires oil refiners to blend specified volumes of biofuels into the nation's gasoline supply, and to purchase biofuels credits that are traded in a market that has been plagued by fraud.

Trump has personally sought to mediate the dispute, which has pitted ethanol backers like Iowa Republican Sens. Chuck Grassley and Joni Ernst against Texas Sen. Ted Cruz, who has pressed the president to grant concessions to the oil industry. But despite a half dozen Oval Office meetings with Trump and several months of study by EPA and Agriculture Secretary Sonny Perdue, oil refiners will receive only modest changes in how regulators handle the biofuel credits.

"The president has repeatedly stated his support for the [ethanol program]," the White House official told reporters Monday. "He thinks that it's good to have domestically produced energy here and he thinks it will be good for the agriculture industry as well as the economy overall."

The oil industry had benefited from the more than two dozen waivers that former EPA Administrator Scott Pruitt granted to refineries that allowed them to ignore the mandate that they blend the corn-based fuel with gasoline. But that angered farm groups, who said it reduced the requirement for ethanol by billions of gallons.

Now, Trump may be trying to make it up to Iowans and come to the aid of a friendly governor before the 2020 Iowa caucuses. Gov. Kim Reynolds, who took the post after Gov. Terry Branstad became Trump's ambassador to China, is currently trailing her Democratic challenger, businessman Fred Hubbell, by 3.5 points, according to the RealClearPolitics polling average.

Trump has twice before promised to expand E15 sales, most recently in July, and Tuesday's move was warmly welcomed by the industry.

“It’s hard to find the proper adjectives to describe how exciting it is to see year-round E15 move forward,” said Monte Shaw, executive director of the Iowa Renewable Fuels Association. “We have worked non-stop on this issue for seven years while the unjustified restrictions hampered retailers from offering E15."

Most U.S. gasoline sold in the U.S. is E10, meaning it contains 10 percent ethanol, though the 15 percent ethanol is sold by many retailers, particularly in big corn-producing states. Trump, who cannot change the policy through an executive order, has now ordered acting EPA Administrator Andrew Wheeler to issue a waiver to the rules specifically for E15 to allow year-round sales.

The White House sought to mollify refiners by ordering Wheeler to alter the trade of biofuels credits, called Renewable Identification Numbers, that oil processors must purchase to show they are complying with the law. Independent refiners have long looked for ways to lower the cost of compliance and to increase transparency in that market. The new measures include limiting the credit purchases to refiners and ethanol importers, as well as requiring individuals holding more than a certain number of credits to disclose their holdings publicly.

Refiners will also now have to prove compliance with the program quarterly rather than annually, and EPA will limit how long companies other than refiners and importers can hold credits.

“President Trump has made strengthening the Renewable Fuel Standard an important priority of this administration," EPA spokesman John Konkus said in a statement, referring to the ethanol program by its formal name. "He is fulfilling his promise by providing clear policy direction that will expand opportunities for our nation’s farmers, provide certainty to our refiners and bolster the United States’ role as a biofuels powerhouse. EPA will follow the president’s direction and proceed as expeditiously as practicable.”

Ethanol proponents say the rule will give gas station owners the incentive to install the equipment to sell the higher biofuel blends, which would increase sales of ethanol.

“We’re very excited to hear the president’s upcoming announcement," Emily Skor, CEO of Growth Energy, an ethanol trade association, said in a statement. "He knows farmers are hurting and they want action on E15 in time for the next summer driving season. Year-round sales of E15 nationwide could deliver demand for two billion bushels of American corn and help restore growth in rural communities."

Oil companies, who would prefer to see congressional efforts led by Sen. John Cornyn (R-Texas) and Rep. John Shimkus (R-Ill.) develop a comprehensive legislative overhaul to the mandate, believe Trump's new policy is "wrongheaded" and the transparency policies don't compensate them enough.

"We just don’t think it rises to the significance of issuing the E15 waiver, and therefore it's no deal at all, from our standpoint," said Frank Macchiarola, vice president of downstream and operations for the American Petroleum Institute. "From a legal standpoint, we don’t think EPA has the authority to issue the E15 waiver, [and] we will aggressively be looking at all of our potential options moving forward with respect to challenging this decision."